Home » Finance Articles » Sloy, Dahl & Holst, Inc. - Q2 Market Outlook - 2011
Sloy, Dahl & Holst, Inc. - Q2 Market Outlook - 2011
Ronald Sloy provides Sloy, Dahl & Holst, Inc.'s quarterly market outlook for Q2 of 2011. Ron provides deep insight into the current, and future, financial market.
PORTLAND, OR, July 16, 2011 /Finance PR News/ -- The second Quarter of 2011 proved to be even more volatile than the first. The Dow had three 800-1,000 point swings during the quarter. The Dow started the quarter at 12,300, got as high as 12,850, retreated all the way back to 11,800 and now sits at approximately 12,700. Proving our point once again, that the long-term investor should not try to time the market.
Second quarter earnings for the S & P 500 are projected to have increased approximately 15 percent. In our estimation a sneak preview of how stocks will do after earning reports get rolling on Monday. Let's look at last year first. Just as they were in summer of 2010, investors are nervous about the economy. And, just as they did last year, analysts expect second quarter profit reports to build confidence in stocks. Aluminum producer Alcoa will be the first major U.S. Company to report its second-quarter results. Analysts predict that companies across the S & P 500 will report higher total earnings for the seventh straight quarter.
Last year, cost cutting helped S & P 500 companies boost their total earnings by 41 percent. That helped calm worries about the economic recovery. The S & P 500 climbed 6.9 percent during July 2010, even though payrolls were shrinking, and growth in retail sales and manufacturing had slowed.
The economy has picked up since then, but there is still some concern; job growth has seesawed. Overall retail sales in May fell for the first time in 11 months. Manufacturing growth had slowed again since May.
Still, stocks have recovered most of their losses from six weeks of declines that began in May. Apparently the saying, "sell in May and go away," held true this quarter. A big earnings season will build even more confidence. We wouldn't be surprised to see the same pattern in the market that we saw last year with stocks rising in July.
Two possible catalysts to drive the market higher this summer would be for the U.S. debt issue to be resolved between the Democrats and the Republicans. And, two, good strong second quarter earnings. Our firm feels confident that both of these will happen.
I would like to take this time to address why we are over-weighted in the financial sector. Financials are valued lower today than they were in the fourth quarter of 2009, a time when asset quality was unknown, and the very survival of the financial system was in doubt. This makes no logical sense. The current fear, caused by the emotional scars inflicted on investors who lived through a life-altering crisis in 2008 and 2009, is creating a wonderful opportunity for the rational investor.
Why bullish? First and foremost, prices are low-in several cases, irreplaceable financial institutions are trading below tangible book value, e.g. Bank of America, Citigroup, and Morgan Stanley. For those of you who may not be familiar with the term "tangible book value", it is considered the liquidation value for a financial institution. The panicked investor is so scared that he/she is giving the rational investor a gift. In my opinion, this is what holds true today with the U.S. money center banks and investment banks.
In early 2009, it was unclear if the financial system was going to survive. No one knew what any of the assets on banks' books were actually worth and panic reigned. The price of financial stocks reflected all of that uncertainty and the stocks of leading financial institutions were tremendous buys. Since then, capital levels have gone from low to high by any historical measure. Core earnings are intact and robust. The competitive landscape is dramatically diminished (think of all of the institutions that are gone). Balance sheets have had two-plus years of scrubbing by regulators and auditors as well as two-plus years of seasoning of poorly underwritten assets. Perhaps at no other point in time have balance sheets been cleaner than they are today. The bottom line is for those investors that have a one to two year time horizon, there is nearly no other story as compelling as the risk/ reward of owning the big financials. Howard Marx states, "Intelligent Investing is knowing what something is worth and investing in it for less." This is how we view the financial sector at this time.
In the end, this is pretty simple and I'm reminded of two adages "Don't fight the Fed" and, from Warren Buffet, "Be fearful when others are greedy, and be greedy when others are fearful." It is our firm's belief; it is clearly a time to be greedy regarding the financials.
We still hold strong with our year-end forecasts, of the Dow at 13,500 or higher. Oil closes the year at $110 a barrel, and Apple Computer closes the year at $400 per share, or higher. Please keep in mind, the rest of the summer looks volatile, but the second half of this year will be better than the first.
Look forward to talking with you next quarter.
- Ron Sloy, CFP
Sloy, Dahl & Holst, Inc. is a registered, full-service financial advisory firm with over $250 million under management. The company was founded in 1986 by certified financial planners Ronald J. Sloy, Tony Dahl & Jim Holst, three enterprising young men who dreamed of offering their clients better solutions than the in-house investment products available with their former employer. You can reach us at http://www.sdh-inc.com or at (503) 248-9800
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Press Release Contact Information:
Ron Sloy
Sloy, Dahl & Holst, Inc
Certified Financial Planner
1230 SW 1st Avenue, Suite 310
Portland, OR
United States of America 97204
Voice: 503-248-9800
Fax: 503-248-7088
Website: Visit Our Website |
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